India’s automobile industry is one of the largest and fastest growing markets in the world, with a market size of over USD 118 billion in 2020. In 2021, India produced around 4.4 million vehicles, making India the fourth largest globally. The industry has seen robust growth over the past few years, driven by factors such as rising disposable incomes, increasing urbanisation, and favourable government policies. Asian Insiders partner in India, Pawan Bhatnagar discusses what makes India an attractive destination for foreign companies considering India’s automobile industry.

There are several reasons why India’s automobile industry is attractive to foreign manufacturers.

India is the world’s fifth-largest automobile market with a population of over 1.3 billion people. The middle class is growing, and Indian consumers enjoy an increasing disposable income. The economy is presently one of the fastest-growing economies in the world, with a projected growth rate of 6.8% in 2022-23. This growth is expected to drive demand for automobiles, particularly in the passenger vehicle segment. Further the Indian government has recently implemented several policies to encourage foreign investment in the automobile sector, such as reducing import tariffs and providing incentives to set up manufacturing facilities in the country. India offers a significant pool of trained engineers, designers, and technicians, while labour costs remain comparatively low allowing a suitably skilled and cost-effective workforce for foreign companies looking to enter the market. India has a well-developed supply chain for the automobile industry, with a large range of local suppliers of raw materials, tooling facilities, components and parts. In addition, as the world shifts towards electric vehicles, the Indian government has set a target of achieving 100% electric mobility by 2030, presenting an opportunity for foreign electric automobile manufacturers.

India’s automotive industry includes several segments, including passenger vehicles, commercial vehicles, two-wheelers, three-wheelers, and others, such as earthmoving equipment, heavy plant machinery and agricultural machinery. According to the Society of Indian Automobile Manufacturers (SIAM), the total domestic sales of automobiles in India between April 2020 to March 2021 was almost 16.5 million units. This total includes 2.7 million passenger vehicles, over 15 million two-wheelers, almost 80,000 three-wheelers and some 570,000 commercial vehicles.

While the volume of earthmoving, heavy plant machinery, and agricultural machinery unit production isn’t accurately covered in the SIAM data, the construction equipment market is estimated around USD 4.5 billion in 2020 and is expected to grow at a CAGR of 6.2% over the forecast period 2021-2026. Similarly, the agricultural machinery market is estimated at around USD 9.2 billion in 2020 and is expected to grow at a CAGR of 6.2% over the forecast period 2021-2026, according to a report by Mordor Intelligence.

Accordingly India’s automobile industry presents a range of market entry opportunities for foreign companies. Foreign investors may explore joint ventures options with Indian companies to access local knowledge, connections and expertise as well as to enjoy access to local resources and distribution channels. The ‘Make in India’ initiative creates an environment that actively encourages foreign investment in Indian manufacturing facilities allowing an advantage in lower labour and production costs.

India is aiming to achieve 100% electric mobility by 2030, presenting opportunities in the electric vehicle segment. With a supportive regulatory framework and incentives for electric vehicle manufacturers, foreign companies can bring technological expertise to the Indian electric vehicle market. The Indian automobile market is highly competitive, and after-sales service is a key differentiator for automobile companies. Foreign companies entering a crowded Indian market will need to bring established after-sales care systems to compete for business while building brand loyalty. Further, within India’s automobile industry there is an increasing emphasis on digitalization and technology, so foreign companies will need to leverage technological expertise to offer innovative consumer solutions such as connected cars and digital platforms for sales and service.

India’s automobile industry represents an attractive range of opportunities for foreign companies to participate in the world’s fifth largest and rapidly growing automotive market.

While there are significant gains to be made from entering India’s automobile industry, there are a range of hurdles to be negotiated and for which I recommend seeking good advice and long-term support. India’s automobile industry remains highly regulated, and foreign companies must comply with various regulations and legal requirements in order to enter the market. India has a complex tax structure, while recent provisions towards simplifying this is under way. Foreign companies must navigate several taxes, including customs duty, excise duty, sales tax and value-added tax. India’s intellectual property laws are not yet as strong as in some other countries so foreign companies will likely need to be robust in asserting their intellectual property rights in the Indian market.

While undergoing considerable modernisation, India still lacks adequate infrastructure, including transportation, power, and communication facilities, especially away from major centres and impacting supply chain and logistics operations. India’s rapidly expanding economy can be volatile, with fluctuations in the exchange rate, inflation and interest rates. Fiscal prudence will be required.

India’s automobile industry is also highly competitive, with several established players holding significant market share. Further India is a nation with strongly diverse culture and language, and foreign companies will need to work to understand and adapt to the local business culture.

India’s automobile industry offers tremendous opportunity for international companies to successfully enter the market. Amidst this challenging environment, Asian Insiders offers vast experience and knowledge. For a no obligation call, please contact Jari Hietala, Managing Partner: jari.hietala(at)asianinsiders.com or Pawan Bhatnagar, India Partner: pawan.bhatnagar(at)asianinsiders.com